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Basic Economic Concepts and Principles

Economics is comprised of principles and concepts that branch off into different topics and subtopics. One of the main principles of economics is that everything has a cost and incentive, and that these incentives matter. The three kinds of incentives in economics are economic incentives, social incentives, and moral incentives.Also, economic systems are created to influence an individual's incentive and choice, and the value of a good or service is influenced by individuals' choices. Trade is a method used to obtain personal profit or gain. 

Economics is separated into two main areas – positive (analytical) economics and normative (policy) economics. Positive economics deals with descriptive and conditional statements, with descriptive being the portrayal of things currently or in the past and condition being a forecast formed by the analysis of economic behaviour¹. Normative (policy) economics looks at statements that have value judgments and cannot be completely confirmed by facts¹.

Scarcity is an important economic concept because it is the study of how limited goods are allocated among competing individuals (or firms). The general idea is that humans want and need an unlimited amount of limited resources. Opportunity cost is another key economic concept. This is the value of the “next-best” choice, so the value of the benefits of the forgone alternative. The production possibilities curve represents the maximum amount of output a nation can produce with limited economic resources in a fixed time period¹. The production possibilities curve demonstrates the problem of scarcity, trade-offs and opportunity cost. Once you produce using all your resources, any increase in production of one good or service will have an opportunity cost: sacrificing production in another good or service. 

These economic principles and concepts form the foundation of all economic theories and models.

 

References:

1. Retrieved from http://edu.ctrealtor.com/unprotected/Ch04.pdf

Categories within Basic Economic Concepts and Principles

Elasticity

Postings: 546

Elasticity is the measurement of one variable’s response to a change in another variable. It refers to how much consumers/producers alter their demand/quantity supplied to changes in price or income.

Inflation

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Inflation is the sustained increase in the average level of price (the price level).

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